Egyptian Gas Deal With Israel Under Intense Questioning

Persistent public suspicions about corruption and mismanagement that swirl around Egypt’s secretive deal to sell natural gas to Israel prompted Egypt’s public prosecutor on Friday to extend the questioning of former President Hosni Mubarak for 15 days, judicial officials said.The announcement, carried by the government-run Middle East News Agency, came after the agency reported that the former oil minister, Samih Fahmy, and five other top officials had been imprisoned pending an investigation of the deal.

Adel el-Saeed, the prosecutor’s spokesman, issued a statement saying that among other issues, Mr. Mubarak was being questioned about gas exports to Israel at a low price that amounted to “hurting the country’s interests.” Egypt lost more than $714 million in the deal, the prosecutor said in a statement quoted by wire services a day earlier.

Selling gas to Israel was deeply unpopular in Egypt from the time the pipeline opened in 2008, given the sour public mood toward its neighbor, and it was a rallying point for the Tahrir Square protest movement since its start in January. But the deal was protected at the highest levels as long as Mr. Mubarak was in power. The key shareholder in the private company that brokered the deal was the president’s longtime friend, Hussein K. Salem, and a senior Egyptian official said the intelligence service also owned a slice of the deal.

Now that the protection has been removed, however, the deal has emerged as a kind of public litmus test toward how relations with Israel will be handled in the post-Mubarak era.

“Hosni Mubarak would always be completely responsive to what Israel wanted with zero regard for what the man in the street wanted,” said Mansour Abdel Wahab Mansour, a Hebrew language professor and political analyst of Arab-Israeli relations at Ain Shams University. “That is not going to change 180 degrees, but the new government or the new system will have to give somewhat more consideration to public opinion.”

Egyptian gas exports, not yet fully restored since an explosion rocked the pipeline in the Sinai in February, used to supply 40 percent of Israeli needs.

There were questions from the moment the deal was signed, particularly since it was handed to Mr. Salem and an Israeli partner, Yosef Meiman, whose East Mediterranean Gas Company acted as a middleman between Egypt and the Israel Electric Corporation and other clients.

The basic accusation was that the partners obtained the gas at a preferential rate from the government of Egypt, which cut supplies to local consumers in order to fill the Israeli deal, and then sold the gas at a significant markup, pocketing the profits.

The details of the full deal have never been released publicly. But former Egyptian government officials who have seen it, and who spoke on the condition of anonymity, said the price renegotiated around 2008 was raised to about $4 per million BTUs, up from the previous cap of $1.25 per million BTUs. East Mediterranean Gas could then negotiate its own terms with Israeli buyers.

There is no global benchmark global price for natural gas, noted Nikos Tsafos, an analyst at PFC Energy in Washington. But Mr. Tsafos said that in comparable deals in the region, Turkey, Greece and Italy were paying $7 to $10 per million BTUs.

Mr. Meiman, who controls about one-quarter of East Mediterranean Gas, could not be reached for comment. But the general attitude of the Israeli government toward the arrangement has been that it can accept a re-examination of the deal as long as it is only about price. A senior Israeli official said, however, that if the investigation becomes a pretext for halting the deal for domestic political reasons, Israel would have reason for genuine concern.

In 2007, Mr. Salem sold off separate stakes in the company to a Thai firm and to a partnership headed by Sam Zell, the American real estate tycoon. Mr. Zell’s spokeswoman, Terry Holt, did not respond to requests for a comment on Friday.

Permission for the sale came from the presidency and the intelligence agency, which had a small stake in the deal along with the government-owned Egyptian Natural Gas Holding Company, said the senior Egyptian official, speaking on the condition of anonymity. Ministers outside the petroleum ministry were not consulted and the government ignored a court order to show publicly that the deal was not diverting gas needed domestically.

“That was a big question mark,” the official said. “We never understood why it was sold – and it would have made sense to allow local companies to buy it. From a national security point of view it did not end up with the most sensible arrangement.”

For the Egyptian business community, the answer came down to Mr. Salem, an intelligence agent turned tycoon who fled Egypt after the uprising and is being sought by prosecutors.